Study Finds Pensions Improve Quality of California’s Public Education System, Reduce Turnover Costs
Pensions helped retain 1,825 California teachers, saving the state more than $26 million
WEST SACRAMENTO, CA – A national study analyzing the effectiveness of defined benefit pensions on teacher retention and productivity found that pensions play a critical role in recruiting and retaining highly productive California teachers.
This increases California’s school effectiveness, thereby benefitting students, according to the study titled, “Three Rs of Teacher Pension Plans: Recruitment, Retention, and Retirement,” issued by the National Institute on Retirement Security (NIRS).
For instance, the average California State Teachers’ Retirement System (CalSTRS) member retiring in 2009-10:
- Retired at age 62.
- Performed 27 years of service.
- Earned a pension that replaces nearly 60 percent of pre-retirement salary
- Does not earn Social Security benefits for their service.
“This study validates what has been a widely acknowledged practice in pension administration; there is a direct link between long-term, quality education and a defined benefit pension that provides retirement security,” said CalSTRS Chief Executive Officer Jack Ehnes. “Teachers and administrators often tell us that the retirement security provided in a defined benefit pension is more important than immediate salary gains.”
Additionally, defined benefit (DB) pensions, such as that administered by CalSTRS, save California school districts money by reducing expensive teacher turnover costs.
The new study found that:
- DB pensions helped to retain 1,825 teachers across the state. Because longer tenured teachers are more effective teachers, the increased retention that DB pensions bring increases the overall quality of California public education.
- Because the cost of teacher turnover is substantial, the retention effects of DB pension plans also save school districts money. In 2003, DB pensions saved school districts across California $ 26,101,517 million in teacher turnover costs.
- Teacher effectiveness increases with experience. Education policy literature finds that teacher productivity increases sharply in the first few years of teaching. Thus, the more retention achieved among mid- career teachers, the more average teacher productivity within a school will increase.
- The cost of teacher turnover is quite high, both in terms of financial cost and loss of productivity to the school district. Additionally, public school teachers turn over less than private school teachers, largely due to their compensation packages, which include pension benefits.
- DB pension plans help to recruit high quality teachers, and to retain highly productive teachers longer, as compared with defined contribution (DC) individual retirement accounts, similar to 401(k)s.
Ilana Boivie, report author and economist with NIRS said, “Education policy literature is clear: teachers become more effective as they gain experience. Research also shows that an essential tool for retaining these highly effective teachers is a pension benefit, which provides a modest, guaranteed income at retirement. Moreover, pensions help reduce substantially the high cost of teacher turnover to school districts and taxpayers. These cost savings are a particularly important consideration for state and local policymakers striving to improve education, yet continuing to struggle with highly strained budgets.”
The study is available at www.nirsonline.org, and provides California-specific data including teacher turnover cost savings associated with pensions.
The California State Teachers’ Retirement System, with a portfolio valued at $146.6 billion as of August 31, 2011, is the largest teacher pension fund and second largest public pension fund in the United States. CalSTRS administers a hybrid retirement system, consisting of a traditional defined benefit, cash balance and defined contribution plan, as well as disability and survivor benefits. CalSTRS serves California’s 852,000 public school educators and their families from the state’s 1,600 school districts, county offices of education and community college districts.
The National Institute on Retirement Security is a not-for-profit, non-partisan organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers, and the economy through national research and education programs. Located in Washington, D.C., NIRS has a diverse membership of organizations interested in retirement security including financial services firms, retirement plan sponsors and service providers, and trade associations among others.